Abstract:
The study examined the effect of public expenditure on unemployment in Ghana
using annual data for the period 1980 to 2016 by employing Autoregressive
Distributed Lag (ARDL) approach to cointegration. The study revealed that
there is an inverse relationship between government consumption expenditure
and unemployment rate. However, government capital expenditure and
unemployment rate were found to be positively related. The study therefore
established that the threshold of government gross fixed capital formation
(capital) expenditure on the rate of unemployment is 6.9 percent of gross
domestic product. Hence, government gross fixed capital formation (capital)
expenditure that exceeds 6.9 percent of gross domestic product could help to
reduce the unemployment rate in Ghana. Furthermore, the study revealed that
inflation, external debt, domestic credit to private sector (as a proxy for private
sector development) with the exception of growth rate of gross domestic
product are significantly key determinants of unemployment in Ghana. The
study recommends that government consumption spending should be increased
to help control the rate of unemployment. The study also advocates that
government capital spending should not be less than 6.9 percent of gross
domestic product to be able to control unemployment. The study further
recommends that fiscal authorities should ensure that revenue is generated
internally by expanding the tax base to include the informal sector. This will aid
the country to minimise external borrowing.
